An Indonesian prenup can provide protection for future business profits by establishing how they are to be treated within the spouses’ marital property arrangements. This can be particularly important for foreign-Indonesian couples where one spouse owns a company or family business, as property acquired during marriage generally falls within Indonesia’s joint-property regime unless a marital agreement establishes a different property arrangement.
Separating a Business from the Income It Generates
Under Indonesia’s Marriage Law, property acquired during marriage generally becomes joint property, while property brought into the marriage is treated differently. Indonesian law also allows spouses to establish their property arrangements through a marital agreement.
This distinction matters where one spouse already owns a business. Consider an Indonesian spouse who owns 70 percent of the shares in a PT before marrying a foreign national. The shares predate the marriage, but the company may subsequently pay dividends to the shareholder.
The spouse could also receive a salary or director remuneration for working for the company. These payments arise for different reasons: dividends derive from share ownership, while salary or remuneration derives from work performed. A prenup involving business interests can specify how the spouses intend these different sources of income to be treated within their marital property arrangements.
What Happens When Business Profits Are Reinvested?
A separate question arises when business income is used to acquire another asset.
For example, a spouse could use dividends from separately held PT shares to acquire shares in another company, establish a new business, or purchase another investment. The marital agreement can specify how the spouses intend business income and assets subsequently acquired from those proceeds to be treated within their property arrangements.
This matters because the new asset may be derived from the original business even though it no longer takes the form of the original shares. Addressing this in the prenup can reduce uncertainty over the treatment of wealth created from business profits during the marriage.
When Separate and Joint Funds Are Mixed
The treatment set out in a prenup may become harder to establish when business distributions are mixed with joint funds before being used to acquire another asset.
For couples seeking to keep particular business proceeds separate, the source and subsequent use of those funds may become relevant if ownership is later disputed. This can be especially important where an asset is purchased partly from separately treated business income and partly from joint property.
Who Should Include Business-Profit Provisions?
Detailed provisions are more relevant where one spouse enters the marriage with significant business interests or expects separately held shares to generate substantial income during the marriage.
For foreign-Indonesian couples, the appropriate provisions should reflect the business interests involved rather than assuming that separating existing shares resolves the treatment of future profits.
A marital agreement must still operate within Indonesian law and cannot override the rights of affected third parties. Indonesian law recognizes that marital agreements may affect third parties where their interests are involved.
Structuring an Indonesian Prenup with Jarji Zaidan & Partners
Jarji Zaidan & Partners assists Indonesian and foreign spouses in preparing prenuptial agreements involving business interests and marital property arrangements. Contact us at info@jarjizaidan-partners.com or on WhatsApp +62 821-9000-3273 / +62 813-1403-8907 for support.
